The Boom-Bust economic cycle

According to most economists, an economic boom is typically characterized by an increased level of economic output (GDP), a corresponding increase in aggregate demand, falling unemployment, and often, a rise in the inflation rate. During busts, or recessions, aggregate demand is low, inflation decreases, unemployment rises and national income falls. In extreme recessions deflation (a sustained fall in the general price level) may occur. The causal relations between these indicators have been the subject of much debate from which ideas such as the NAIRU (non-accelerating inflation rate of unemployment) have emerged.

The economic cycle has been an important political issue since the Great Depression. Prior to this, classical economic theory denied the existence of the economic cycle.